Category Archives: ECB

Found one buyer of euro- Swiss Nat Bank

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Seems they are willing to take the credit risk to support their exporters at the expense of the macro economy, rather than cut taxes to sustain domestic demand:

(Dow Jones) — A Swiss National Bank official reiterated Sunday that the central bank will act decisively to prevent excessive appreciation of the Swiss franc against the euro, adding the central bank is taking into account the development of the economy in its entirety.

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GS on GREECE – INITIAL IMPRESSIONS AND MARKET

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This remains the tricky part, seems:

Several key issues remain outstanding, however:

1. The budgetary and reform milestones which need to be cleared in order for Greece to receive funding have yet to be hammered out with the lenders. The statement suggests that discussions will start tomorrow and may last weeks, potentially resulting in market volatility if there are disagreements.

2. Availability and drawdown conditions have yet to be decided. Specifically, the one reached over the weekend is a political agreement and each EMU government will now need to go seek legislative approval in Parliament. Related open questions include: Where will the loans rank with respect to other existing Greek debt? Where will these loans show up in the lenders’ books (i.e., will they increase the deficit and debt)? Will they require extra funding in the capital markets?

3. Most importantly, as Erik Nielsen has commented in a note this afternoon, the issue of medium term debt sustainability remains open. It will depend on measures and reforms put in place by the Greek authorities, the response of domestic activity, and the external economic environment.

Best Regards. FUG
Francesco U. Garzarelli

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Greece is offered 30bn euros loan

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Yes, this is the first ‘real’ offer, with a rate and a quantity.
I heard it requires approval of all 16 member nations.

This could initially stabilize the bond markets if/when approval is discounted, with short covering in the euro as well.

The terms and conditions include IMF ‘austerity’ measures which will act to slow the economy of Greece and the entire EU, which is already dangerously weak to the point of promoting higher budget deficits through low tax revenues and high transfer payments, all of which serves to further weaken the credit worthiness of all the member nations. It also increases the euro debts of the other contributing nations. While this is a very modest amount, the implication of the same type of ‘rescue’ for the larger euro nations that might go the way of Greece is for much higher levels of stress for the remaining euro member nations presumed to be ‘strong.’

The euro should therefore fundamentally remain on the weak side as the high levels of euro national govt deficits are adding the non govt sectors holding of euro denominated financial assets, with the austerity measures likely to add to euro govt deficits and euro weakness.

Greece is offered 30bn euros loan

April 11 (BBC) — Leaders of the 16 eurozone nations have agreed to fund up to 30bn euros in emergency loans for debt-hit Greece, if the country wants the cash.

The price of the loans will be fixed using IMF formulas, and be about 5%.

Luxembourg Prime Minister Jean-Claude Juncker, speaking for eurozone finance ministers, said there were no elements of subsidy in the loan proposal.

“The total amount put up by the eurozone member states for the first year will reach 30bn euros,” he said.

Mr Juncker added that the financing would be “completed and co-financed” by the International Monetary Fund.

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The greece market is essentially shut. A new wave of stops-out

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Greece dragging other peripherals weaker by 5-10 bps
Small bull steepening in swaps, 2s30s 1-1.5 steeper

Subject: The greece market is essentially shut. A new wave of stops-out

The greece market is essentially shut. A new wave of stops-out
getting triggered today in Greece. The tickets are all small
and electronic but all one way. The market is very illiquid
even in b/marks. In the HDAT the on the runs were quoted
in tiny at start of day now there is nothing – last looked like

GGB 4.3 03/12 (644.1bps vs core, +76.0)
GGB 6.1 08/15 (570.0bps vs core, +52.5)
GGB 6.25 6/20 (428.1bps vs core, +21.0)
GGB 4.6 09/40 (330.6bps vs core, +12.7)

the linker 2.3 30 is trading with 4points bid-offer now.

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European Retail Sales Decline Most in Nine Months

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‘market forces’ are driving national deficits higher via automatic stabilizers which drives the euro lower to the point exports rise sufficiently to turn the tide, but that needs to happen before the rising deficits result in defaults.

On Thu, Apr 8, 2010 at 6:04 AM, La-Toya Elizee wrote:

European Retail Sales Decline Most in Nine Months

Revamped ECB Lending Rules May Cause Greece Pain

German Factory Orders Unchanged After January Jump

French Trade Deficit Widened in February on Imports

Capital flight squeezes Greek banks

Italy needs deep reform, say employers

Spain’s Industrial Output Falls More Than Expected in February

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Greek Banks Plead for More Aid in Debt Crisis

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It’s all falling into place with the austerity measures taking their toll on the financial equity that supports the credit structure in a euro wide banking system that does not have credible deposit insurance.

Greek banks plead for more aid in debt crisis

By George Georgiopoulos and Harry Papachristou

Apr. 7 (Reuters) — Greek banks, hit by a series of credit rating downgrades linked to the country’s debt crisis, have asked the government for more financial support, Finance Minister George Papaconstantinou said on Wednesday.

“The banks have asked to use the remaining funds of the support plan,” he told reporters, referring to a package first agreed by the previous conservative government in 2008.

About 17 billion euros ($22.72 billion), mainly in state guarantees, remain in the 28 billion euro support scheme, launched to help Greek lenders cope with the global credit crisis.

The Central Bank of Greece said non-performing loans in the banking system rose further in the last quarter of 2009, bringing the full-year ratio to 7.7 percent.

The banks’ plea for extra help highlighted the problems facing the entire Greek economy, which is expected to contract by at least 2 percent this year, partly as a result of austerity measures imposed to slash a huge budget deficit.

IMF officials began talks in Athens on Wednesday on implementing the austerity plan, just as the latest market jitters over Greece’s ability to manage its debt mountain eased slightly, despite uncertainty over a euro zone rescue plan.

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EU Daily

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The institutional structure puts the Eurozone in a very awkward position.

The higher deficits desired by the economy to restore non govt net financial assets at the same cause a deterioration in the credit worthiness of the member nations running the deficits, which seems to limit the process as these to two forces collide in a counterproductive, unstable and turbulent manner.

The higher member nation deficits also are a force that moves the euro lower which can continue until exports somehow resume via the foreign sector reducing its net financial euro assets as evidenced by a pickup in net euro zone exports. That process can be drawn out and problematic as well in a world where global politics is driven by export desires from all governments.

EU Headlines:

Trichet Expects Investors to ‘Recognize’ Greek Moves

Italian Consumer Prices Rose in March on Energy Costs

Europe Inflation Jumps More Than Economists Forecast

Euro Area Needs to Substantially Improve Governance, EU Says

German Unemployment Unexpectedly Declined in March

German Machine Orders Jumped 26% in February on Foreign Demand

France’s 2009 deficit hits record high 7.5 percent of GDP

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ECB rate hike discussion will compound funding issues

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ECB’s Liikanen Says Interest Rates Won’t Stay Low

By Diana ben-Aaron

March 29 (Bloomberg) — European Central Bank Governing Council member Erkki Liikanen said interest rates won’t stay at the current level indefinitely, Maaseudun Tulevaisuus reported, citing an interview.

While low rates have eased the economic slowdown, households and businesses shouldn’t count on them forever, Liikanen was quoted as saying by the Helsinki-based newspaper. He declined to say when or by how much rates would increase.

“We decide the key central bank rate in the ECB council according to the requirements of the economic situation,” Liikanen said.

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Rasmussen polls

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65% Now Hold Populist, or Mainstream, Views

55% Favor Repeal of Health Care Bill

I find his polls as good as any. He shows 54% favor repeal of the new health care law, with 70% of seniors against the Medicare cuts.

The lack of understanding of the monetary system is taking an increasing both economically, politically and socially.

With almost 20% of the workforce unable to find full time work, and near record low capacity utilization in general, our leaders saw fit to raise taxes and cut spending which will lower demand and undermine their political careers to ‘pay for’ a very modest spending increase of about $100 billion a year, and with delays, of the perhaps additional $1 trillion of fiscal adjustment needed to get us back to full employment in a reasonable time frame.

Also, part of the rise in costs goes to insurance reserves which are a demand leakage.

The politics get uglier by the day, and from watching the news over the weekend the loudest health care protest seems to be over the expense and how it will add to the size of the deficit. Seems this means more ‘fiscal responsibility’ is on the way, including letting the tax cuts expire next year and maybe even a VAT which is an absurdity under any circumstances, apart from a desire to cut consumption.

Add to that the reality of the eurozone actually offering Greece nothing of value, opening the way for wider credit spreads spreading to the entire eurozone.
It also looks like their combined deficits are now large enough for the added non govt financial assets to now be driving down the euro independent of the credit issues. This continues until exports increase sufficiently for the automatic stabilizers to tighten fiscal balances. They aren’t anywhere near there yet.
Additionally, the dollar index chart is beginning to pick up a bid from commodities traders as well.

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